We hit puberty as the dotcom bubble was bursting. We graduated into the 2007/08 recession. We even sat through the entire runtime of The Wolf of Wall Street. So really, it’s no wonder millennials are said to be the most financially conservative generation since the Great Depression. Rather than gamble our money in the stock market, we’d much rather cram it between our mattresses and just forget it.
“Along with the rise in precarious work which really limits their incomes, many millennials feel like the investment market volatility is super scary and perhaps not worth the risk,” explains Liz Shieck of the New School of Finance in Toronto. She specializes in financial planning for young people, and has counselled many a millennial in how to start dabbling in more adventurous investing.
Shieck shared with us her case for investing (and investing early):
Sorry, your savings account is losing you money
You’ll earn about one percent interest on what you store in your savings account. Meanwhile, inflation will be running around 1-3 percent. It doesn’t take a financial analyst to realize that those numbers aren’t working in your favour. Sure, investing in the market runs the risk of short-term losses, but by not investing, your loss is guaranteed.
Compound interest is a beautiful thing
According to plenty of cheesy quotation websites, Albert Einstein once called compound interest “the most powerful force in the universe” Whether or not this actually happened, the sentiment is wholly accurate. Let’s say you make a $500 investment when you’re 25, and never touch it again. Assuming you get a five percent annual interest rate, by the time you retire you’ll have earned an extra $3,000—just in interest.
“Compounded growth adds up very quickly, especially in tax sheltered accounts like RRSP and TFSA,” says Shieck. She urges her young clients to get start investing as soon as they can, as even moderate savings can yield massive returns over the long run. Otherwise, if you wait to start investing in your 40s, you’ll have to make major deposits to catch up to where you’d be if you started early.
Investing can bring peace of mind
Consider incorporating investing into your self-care routine. Along with yoga, tea, and a playlist of ASMR videos, setting aside 10 percent of each paycheck can provide major relief from your crippling anxiety. “Watching your assets climbing over time has an immense impact on your feelings of financial security and your general emotional well-being, and that’s priceless,” says Shieck.
You may want to set up a continuous savings plan that automatically deducts a chosen amount from your paycheck. Absolutely no mental effort required!
Ok, you’re convinced. Now what?
Set up your emergency fund first.
It’s advice you’ve likely heard before, but we’ll say it again: make sure you’ve got a solid safety net set up before making any big financial decision. Pay off your credit cards, and save up enough to cover at least three months’ worth of living expenses before you start moving your money into the market.
Figure out what you’re doing.
There are an infinite number of finance blogs—and uncles with good intentions—out there offering advice. But not all of them are real experts, and it’s unlikely that any would actually be able to speak to your unique financial situation.
“Get unbiased advice first,” says Shieck. “Educate yourself so you can navigate the system and get the right services for you without getting ripped off.”
If you’re working with an investment professional, you’ll pay them either a percentage of your portfolio or a flat fee. If this seems too steep, it may be worth checking to see if you can use your parents’ Investor Advisor, or start out with online investing services.
Remember, you can afford to be bold (if you want).
As a young person, you’ve got time on your side. Any mistakes you make early on, well, you’ve got about 40 years before retirement to fix them. And you’ve got much less to lose, since your current savings probably aren’t staggering. If you take a chance on higher risk stocks, you could potentially lose a little, or gain a ton.
But know the risks, and plan around them.
Shieck’s a strong advocate of investing, but she always talks her clients through the real risks they may encounter before she offers any concrete advice. “Both housing and investment markets have risk,” notes Shiecks, “and we stress the importance of diversifying your money between different types of assets so that all your financial eggs aren’t in one basket.”
So while you’re out experimenting with startups and emerging markets, you may want to set aside some money into the old standbys like Guaranteed Investment Certificates or Government of Canada bonds.
All this will help you make smarter decisions down the line.
“If you invest early, you get to learn your own risk tolerance before the financial stakes are too high,” argues Shieck. “If you wait to invest until you’re in your 40’s and have kids or a house or whatever, your first bout of market turbulence may scare you way more!”
When we’re scared, we tend to make impulsive decisions (see the latest US election). But if you’re a seasoned investor, you’re much more likely to hold on through tough times and protect more of your money in the long run.